Prior to the novel coronavirus pandemic, risky stocks like Modenra (NASDAQ:MRNA), for example, were trading sideways. Further, the company didn’t have any commercialized vaccine. With the company being a front-runner in the race to produce a vaccine, the stock has surged by 150% in the last six months.
Similarly, Nio (NYSE:NIO) is almost back from the dead when it received funding support earlier this year. Nio stock has surged by 377% in the last six months. The Chinese electric vehicle maker has also been delivering robust vehicle delivery numbers in the recent past.
These are just two examples of relatively risky stocks that have delivered stellar returns in the short-term. These examples also underscore my view that it’s important to have few risky stocks in the core portfolio.
While defensive stocks protect capital and ensure steady returns, risky stocks can boost portfolio returns. This column will discuss four high beta stocks that can be considered for exposure.
Its important to note that risky stocks might not necessarily be small-caps. There are high beta stocks among large-cap stocks as well. It makes sense to have a mix of small and large-cap stocks in the portfolio of risky stocks.
- Freeport-McMoRan (NYSE:FCX)
- Inovio Pharmaceuticals (NASDAQ:INO)
- Aurora Cannabis (NYSE:ACB)
- Pinduoduo (NASDAQ:PDD)
4 Risky Stocks Worth a Gamble: Freeport-McMoRan (FCX)
FCX stock has a beta of 2.3 and is among the large-cap risky stocks worth holding. Being in the commodity space, the company’s earnings are subject to volatility. This makes FCX stock also volatile.
In the last six months, the stock has shown positive momentum, having moved higher by 56%. I believe that there is more juice in the rally. Its worth noting that copper prices have bounced back from lows made earlier this year. As global GDP growth gradually recovers, copper prices will trend higher and FCX stock is likely to see further momentum.
The company also expects copper and gold sales to increase in the coming years coupled with decline in cash cost. Therefore, higher unit price coupled with higher production is likely to drive EBITDA and cash flow growth.
From a fundamental perspective, the company reported net-debt of $8.4 billion for June 2020. By the end of next year, the company expects net-debt position to decline to $5.3 billion. With lower debt and a bright growth outlook, I expect dividends to increase in the coming years.
FCX stock is therefore attractive for the medium- to long-term even with the stock being volatile as compared to the index.
Inovio Pharmaceuticals (INO)
INO stock has surged by 426% in the last year and is among the risky names worth considering. The company is also in the race for COVID-19 vaccine.
With Phase 2 and 3 trials for the vaccine expected in the coming months, the stock is likely to remain in focus. A potential risk is that the company still does not have any commercial drug or vaccine. However, with 15 DNA medicine clinical programs currently in development, the future is likely to be exciting.
Recently, it was rumored that AstraZeneca (NYSE:AZN) is likely to get fast-track approval of COVID-19 vaccine in the United States. With several companies working on vaccine development, this is another potential risk for Inovio Pharmaceuticals.
Even with these factors, INO stock is worth considering. Earlier this year, the stock made a 52-week high of $33.79. After a meaningful correction, the stock trades at $12.50. I would not be surprised if the stock revisits highs if there is positive development related to the next phase of trials.
Aurora Cannabis (ACB)
ACB stock is another high-risk name that has the potential to deliver in the long-term. Cannabis stocks have been beaten-down on a sustained basis after March 2019. The reasons being slower than expected growth, regulatory hurdles, and high cash burn.
However, its too early to assume that the industry is unlikely to grow. Aurora Cannabis has embarked on a transformation plan that intends to improve profitability and reduce cash burn.
As a part of this plan, the company has launched Cannabis 2.0 products that include vapes, gummies, chocolates, baked goods and mints. If sales gain traction, EBITDA margin is likely to improve. At the same time, the company is pursuing clinical trials for medicinal cannabis. This can be a potential long-term game changer.
ACB stock touch 52-week lows of $5.30 in May 2020. The stock currently trades at $9.30. I believe that some exposure can be considered at current levels. If the company can reduce cash burn and Cannabis 2.0 products deliver positive numbers, the stock is likely to surge.
However, for investors willing to consider a relatively risky name, PDD stock is attractive. The stock has surged by 156% in the last six months and some profit booking is likely. However, PDD stock is worth keeping in the radar.
One of the positives is that the company has seen strong growth in active buyers and annual spending per active buyer. The company’s Q2 2020 revenue surged by 67% as compared to Q2 2019.
However, my concern is that the company is still reporting losses at an operating level. For Q2 2020, operating loss as a percent of revenue declined to 6%. If the company can report profits at operating level, the stock momentum is likely to sustain in the coming quarters.
Therefore, PDD stock is worth keeping an eye on and adding on any potential correction.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector. As of this writing, he did not hold a position in any of the aforementioned securities.